A panel of the 5th U.S. Circuit Court of Appeals in New Orleans this week overturned a $25 million damages award against Pilgrim’s Pride Corporation to contract poultry growers that accused the company of violating antitrust law by trying to manipulate poultry prices.
The two-judge panel found that a federal magistrate judge erred in finding that Pilgrim’s Pride’s decision to idle a chicken processing plant in El Dorado, Arkansas, in May 2009 and end contracts with the contract growers was motivated by a desire to control prices.
Tuesday’s decision overturned a December 2011 ruling by U.S. District Judge David Folsom in the Eastern District of Texas, which largely upheld a ruling on damages three months earlier by U.S. Magistrate Judge Charles Everingham, which awarded 91 growers $25 million in damages in September 2011.
Pilgrim’s Pride shut the El Dorado plant five months after filing for bankruptcy protection in December 2008, amid rising feed costs and low meat prices. Pilgrim’s Pride emerged from Chapter 11 in December 2009, and is now majority-owned by Brazilian meat company JBS SA.
The panel said the closure was “neither illegitimate nor anti-competitive” given that Pilgrim’s Pride had been driving down prices by producing too much, and “wisely decided to stop flooding the market with unprofitable chicken.” “Pilgrim’s Pride conduct was merely the legitimate response of a rational market participant to changes in a dynamic market,” the panel said in an unsigned decision. “If a firm inadvertently overproduces a good and drives down prices, it does not break the law by cutting production so that prices may recover.”
The courts said they could find no case law stating such conduct to be unfair or illegal. “Far from being a nefarious goal, higher prices are the natural consequences of a reduction in supply,” the panel wrote. “If it is lawful for a business to independently control its own output , then is is also lawful for the business to hope for the natural consequences of its actions.”
